Britannia Radio

Debt of £9m hangs over Labour

By Jim Pickard, Political Correspondent

Published: March 19 2010 20:20 | Last updated: March 19 2010 20:20

Labour will have to pay about £3m in interest over the next parliament to some of the millionaires who bankrolled the party’s election campaign in 2005, the Financial Times has learnt.

The party will then have to repay up to £8.9m of outstanding loans to the businessmen in September 2015 – an obligation that could raise fears about its long-term financial prospects.

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Labour found itself at the centre of a storm four years ago after it emerged the party had borrowed £14m from 12 people without making the arrangements public. When news of the loans emerged it prompted a police inquiry into cross-party allegations of cash-for-honours, although the Crown Prosecution Service decided that no one would face charges.

Under an agreement struck 18 months ago, two of the millionaires converted their loans into donations, two were paid off and seven agreed to reschedule their debts: Rod Aldridge, Richard Caring, Sir David Garrard, Nigel Morris, Chai Patel, Barry Townsley and Derek Tullett. Another lender, Sir Christopher Evans, had already been repaid in full.

According to records at the Electoral Commission, the remaining millionaires agreed to waive interest payments until after the forthcoming general election, providing some relief for Labour. That period comes to an end in July, at which point the loans return to commercial terms at an interest rate of 6.5 per cent – or £578,500 a year. Over a five-year parliament that is equivalent to £2.9m.

Bob Marshall-Andrews, a Labour backbencher, told the FT there were likely to be “serious financial problems” for the party after the election. “It may have been munificent of them to drop the interest ahead of the election but it was a problem deferred rather than a problem solved,” he said.

The rate of 6.5 per cent is higher than the interest charged on loans from Labour’s long-term lender the Co-operative Bank.

One of the millionaires told the FT that the debt schedule was not straightforward, as it included annual capital repayments as well as interest. “Think of it like a mortgage, it won’t necessarily be the full sum being paid back in 2015,” he said.

Labour refused to comment on the exact schedule for the repayments, but said it “reflected the ability of the party to meet its liabilities”.

With fewer private donors in recent years, the party has become dependent on the unions, prompting questions over the role played by Unite – the largest trade union – in Labour’s selection process for parliamentary candidates.

Eight people standing for the party are former Unite officials.

Tensions at the highest levels of the Labour party were visible this week when Lord Mandelson was accused of ensuring that Johnny Reynolds, a Blairite candidate, was reinstated on the shortlist for the Stalybridge and Hyde constituency, where James Purnell is stepping down.

The FT understands that Tristram Hunt, a historian and friend of Lord Mandelson, is likely to appear on the shortlist for Stoke Central after having been beaten to the candidacy of Leyton and Wanstead by Jon Cryer – another Unite official.

“It’s all about throwing the Blairites a seat because they’ve lost out elsewhere . . . it’s crazy,” said one leftwing Labour figure.